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Steve Blank

www.steveblank.com

Twitter: @sgblank

Six Ways to Fail at a Startup

Steve Blank

www.steveblank.com

Twitter: @sgblank

Six Ways to Fail at a StartupAnd How to Get it Right

This Talk is Based On• Business Model Generation• Four Steps to the Epiphany

• Lean Startup

I Have a Vision

I Know What Needs to Be Done

Lets Start A Company!

Six Ways to Fail

#1 I Know Who The Customer Is

#2I Know Exactly the Product They Need

#3I Know the Problem They Have

#4We Can Fix It After We Ship It All

#5All I Need to Do is Execute the Plan

#6Let’s Use Large Company Tools

Product Introduction Model

Concept/Seed

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Introduction Model

Concept/Seed

Product Dev.

Alpha/Beta Test

Launch/1st Ship

The Leading Cause of Startup Death

Product Introduction Model:Two Implicit Assumptions

Customer Problem: known

Product Features: known

Concept/Seed

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Marketing

Concept/Seed

Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

Tradition – Hire Sales

Concept/Seed

Product Dev.

Alpha/Beta Test

Launch/1st Ship

• Build Sales Organization

Marketing

Sales• Hire Sales VP• Hire 1st Sales

Tradition – Hire Bus Development

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

• Hire First Bus Dev

• Do deals for FCS

Business Development

Tradition – Hire Engineering

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

• Hire First Bus Dev

• Do deals for FCS

Business Development

Engineering • Write MRD

• Waterfall

• Q/A • Tech Pubs

Startups Are Not Smaller Versions of Large Companies

A Startup is a temporary organization

A Startup is a temporary organization designed to search

A Startup is a temporary organization designed to search for a repeatable and

scalable business model

Startups need their own tools, different from those used

in existing companies

Startups need their own tools, different from those used

in existing companies

Large Companies Execute Known Business Models

Startups Search for Unknown Business Models

So Search for a Business Model

The Business Model:

Any company can be described in 9 building blocks

CUSTOMER SEGMENTS

which customers and users are you serving? which jobs do they really want to get done?

VALUE PROPOSITIONS

what are you offering them? what is that getting done for them? do they care?

CHANNELS

how does each customer segment want to be reached? through which interaction points?

CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring

revenues?

KEY RESOURCES

which resources underpin your business model? which assets are essential?

KEY ACTIVITIES

which activities do you need to perform well in your business model? what is crucial?

KEY PARTNERS

which partners and suppliers leverage your model?

who do you need to rely on?

COST STRUCTURE

what is the resulting cost structure? which key elements drive your costs?

40images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

sketch out your business model

But,Realize They’re Hypotheses

Guesses

9 Guesses

Guess Guess

GuessGuess

How Do Startups Search For A Business Model?

There are no facts inside your building

So Get Outside

Customer Development = process to search

Business Model Canvas is the Scorecard

Agile Engineering is How We Build Startups

Customer Development =process to search

Business Model Canvas =the Scorecard

Agile Engineering is How We Build Startups

• Research Labs

• Equipment Manufacturers

• Distribution Network

• Service Providers

• Technology Design

• Marketing

• Demo and customer feedback

• Cost Reduction

• Remove labor force pains

• Eliminate bio-waste hazards

• IP – Patents

• Video Classifier Files

• Robust Technology

• Farming conventions.

• Demo, demo, and demo!!

• Proximity is paramount

• Organic Farmers

• Weeding Service Providers

• Conventional Farmers

• Dealers• Direct

Service• Indirect

Service• … then

Dealers

• Asset Sale• Direct Service with

equipment rental• … then Asset Sale

Value-Driven

Customer Development is the process used to search

Business Model Canvas is the Scorecard

Agile Development is How We Build Startups

Customer Development

Get Out of the BuildingThe founders

Customer DevelopmentThe Search For the Business Model

CompanyBuilding

Customer

Discovery

Customer

Validation

Customer Creation

• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Test Hypotheses:• Product• Market Type• Competition

Turning Hypotheses to Facts

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Channel

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:• Channel• (Customer)• (Problem)

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:• Channel• (Customer)• (Problem) Customer

Development Team

Agile Development

The Minimum Viable Product (MVP)

• Smallest feature set that gets you the most …orders, learning, feedback, failure…

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

How Does This Really Work?

Lean LaunchPad Class

How Does This Really Work?

Lean LaunchPad Class

8 Weeks From an Idea to a Business

Pivot ExampleRobotic Weeding

Talked 75 Customers in 8 Weeks

Our initial plan

20 interviews, 6 site visits…We got OUR Boots dirty

WeedingVisited farms in Salinas Valley to better understand problemInterviewed:• Bolthouse Farms, Large Agri-Industry in Bakersfield• White Farms, Large Peanut farmer in Georgia• REFCO Farms, large grower in Salinas Valley• Rincon Farms, large grower in Salinas Valley• Small Organic Corn/Soy grower in Nebraska• Heirloom Organics, small owner/operator, Santa Cruz Mts• Two small organic farmers at farmers market• Ag Services of Salinas, Fertilizer applicator

MowingInterviewed:• Golf: Stanford Golf course • Parks: Stanford Grounds Supervisor, head of maintenance and

lead operator (has crew of 6)• Toro dealer (large mower manufacturer) • User of back-yard mowing system• Maintenance Services for City of Los Altos• Colony Landscaping (Mowing service for stadiums)

Business Plan Autonomous Vehicles for Mowing & Weeding

We reduce operating cost- Labor reduction- Better utilization of assets (eg mow or weed at nights)- Improved performance (less rework, food safety)

Mowing- Owners of public or commercially used green spaces (e.g. golf courses)- Landscaping service provider

Weeding- Farmers with manual weeding operations

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers

- Mowing Dealers- Ag Dealers

- Innovation- Customer Education- Dealer training

Dealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

- Dealers (Mowing and Ag)- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Autonomous vehicles, GPS, path-planning

Autonomous vehicles WEEDING

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers

- Ag Dealers- Ag Service providers

Dealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

- Ag Dealers- Ag Service providers

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Machine VisionTwo problems:- Identification- Elimination

1 Week – 1 CarrotBot

Confidential

The Business Plan Canvas Updated

• Research Labs

• Marketing• Demo and

customer feedback

• Cost Reduction

• IP – Patents• Video

Classifier Files

• Organic Farmers

• Conventional Farmers

• Dealers• Direct Service• Indirect

Service• … then

Dealers• Asset Sale• Direct Service

with equipment rental

• … then Asset Sale

Value-Driven

• Research Labs

customer feedback

• Cost Reduction

Classifier Files

• Mid/Large Organic Farmers

• Agricultural corporations

• Mid/Large Conventional Farmers

• Direct Service• Indirect

Service• … then

Dealers

• Direct Service with equipment rental

• ($1,500/d; 120d/yr )• Low density:

$1,500/d• High density:

$6,000/d

Value-Driven

World Ag Expo interviews:the need is real and wide spread

• 10+ interviews at show– Everyone confirmed the need– Robocrop, UK based, crude

competitor sells for $171 K

• Revenue Stream– Mid to small growers prefer a

service– Large growers prefer to buy, but

OK with service until technology is proven

– Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability)

• Research Labs

• Equipment Manufacturer

• 2 or 3 Key Farms

customer feedback

• Cost Reduction

Classifier Files

• Mid/Large Organic Farmers

• Agricultural corporations

• Mid/Large Conventional Farmers

• Direct Service• Indirect

Service• … then

Dealers

• Direct Service with equipment rental

• Low density: $1,500/d

• High density: $6,000/d

Value-Driven• R&D• Bill of Materials• Training &

Service• Sales

Autonomous weeding - Final

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables

Direct- Provide high quality service at competitive price

Direct - Alliance with service providers- Eventually sell through dealers

Costs for service provisionCOGS seek a 50-60% Gross MarginHeavy R&D investment

- Ag Service providers

- Research Institutes (eg UC Davis, Laser Zentrum Hannover)

- 3-4 key farms

Service provision- Charge by the acre with modifier according to weed density - Eventually move to asset sale

Engineers on Machine VisionTwo problems:- Identification- Elimination

Thanks

www.steveblank.com

I Write a Blog www.steveblank.com

Personal Libraries

Insight: No more bookshelves

Printed Books -20% YoY ‘10

eBooks+150% YoY ‘10

Version 1.0: Personal Libraries

Original Idea: Personal Digital Libraries

Import, organize and share thousands of digital papers

something-something-something.com

Original idea

SHORT TERMResearchersLawyersScientists

LONG TERMAvid book readersProfessionals

Import, organize and share thousands of papers

FB/TW posts from users you know

Company blog, FB, TW, support forums

Affiliate program

SEO/SEM/SM

IE/FF/Chrome App Stores

Targeted marketing

Product development

Constant iteration & testing

DevelopersMarketers

Libraries, Universities, Research Centers

Bloggers and media targeting customer segment

Academic Database providers

Affiliate program feesLicensingSubscription feesAd revenue

AWS InfrastructureSEMEng & Marketing OpEx

Invincible Business Model: Version 1.0

Here’s What We DidVersion 1.0: Personal Libraries

Got out of the building

• 100+ Interviews

Professors, Litigators, IP lawyers, Post-docs, PhD researchers, Engineering Students, Law Students…

• 100+ Interviews• Extensive Surveys

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks• Usability Tests

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks• Usability Tests• Rapid Iteration

Here’s What We FoundVersion 1.0: Personal Libraries

Here's what we found: Version 1.0

GOOD• Subscriptions Rock

A great business if we had more users…

GOOD• Subscriptions Rock• Pipelines Optimize

Shorter pages raise conversions 80%

GOOD• Subscriptions Rock• Pipelines Optimize• The Web Listens

Sites will feature your service

BAD• Academics = Cheap

Teaching team saw pattern in our data

Run away from this customer as fast as possible.

They don’t want to spend money and will incur infinite support and infinite cost.

BAD• Academics = Cheap• Negative Margins

Working for peanuts, and hitting wild product success leads to economic failure

BAD• Academics = Cheap• Negative Margins• ECM = Boring

No adjacent pivots worked for the team

Version 2.0: Trusted Advice

Original idea

Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

Discover online goods recommended by friends at the lowest possible price from trusted vendors

Company blog, FB, TW accounts

Affiliate program

SEO/SEM/SM

Developing trusted advice and advisors

Web marketing

Affiliate partnerships

DevelopersMarketersContent LibraryInstall baseReadership base

Bloggers and Media targeting customer segment

Retail marketing partners

IE/FF/Chrome teams

Affiliate Program Providers

New Hypotheses

Here’s What We DidVersion 2.0: Trusted Advice

Got out of the building, again

• 40+ Interviews

• 40+ Interviews• Extensive Surveys

• 40+ Interviews• Extensive Surveys• Landing Page Tests

Landing pages tested on affluent, career aged professionals, approximately 70/30

male/female, N=800+

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis• Two Prototypes

Insidely.com

wantio.com

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis• Two Prototypes• Refined Personas

Customer Segment: Professional-class consumers shopping frequently online

Pat the ProfessionalUpwardly mobile professional (some Grad Students)Salary: $40,000 – 150,000/yearFinance, Consulting, PR, MarketingFollows fashion/technology trendsSpends $1-15K on discretionary items onlinePurchased online in last 30 days

Demographics• Male/female, aged 18-35• Minimum bachelors from expensive schoolTraits:• Ideas from blogs & shopping websites • Values celebrity trends & friends’ opinions• Wants high ticket items at lowest price• Event-driven shopper—new release or sale

Motivation• Craves new products• Hates tedious work• Identifies as influencer among friends• Fears being cheated online

Behavior• Spends 5 hour+ monthly hearing about products • Shares online and in person about products he

lovesBudget• $2-10K+/year in discretionary online purchases

“The XXX is awesome, I really want one. I know I just bought the YYY, but it’s probably time to upgrade.”

Source: US Bureau of Labor Statistics

~5.9M “Pat the Professionals” in USDrawn from top 1/3 of 17.8M frequent online shoppers17.8M based on 40.2M Professionals (2008 Census) * 0.762 US Internet Penetration (Nielsen 2010Q1) * 0.58 consumers shopping online in last month (Nielsen 2010Q1)

Online Recommendation Market Opportunity (conservative strawman #s)Assuming 10% share, 5% affiliate fees

Top Shoppers (~$7B/year spend): ~ $35M/year

Professional-class frequent shoppers (~$1.8B/year): ~ $9M/year

Other Professional-class shoppers ($0.7B/year): ~3.5M/year

Version 2.0: Trusted AdviceTop ~6M US Influentials (~$9B/year)

Original idea

Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

Discover online goods recommended by friends at the lowest possible price from trusted vendors

Affiliate program

SEO/SEM/SM

Web marketing

IE/FF/Chrome teams

Here’s What We FoundVersion 2: Trusted Advice

Findings on "Trusted Advice"

GOOD• Fast Interest

Insidely.comTrusted advice site for Silicon Valley/Stanford MBAs

Launched 2/15

425 visitors by 2/28

GOOD• Fast Interest

Ranked #6 by Google for “Stanford Admissions Books”

GOOD• Fast Interest• High Conversion

43% clickthrough on Top Admissions Books for Stanford MBAs article

Compare to 0.5% clickthrough on ads

~100x difference

GOOD• Fast Interest• High Conversion• Needs Addressed

Positive results on “Trusted Advice” Shopping Add-in testing

See videos at http://factnote.com/c/e245

GOOD• Fast Interest• High Conversion• Needs Addressed

Super easy to install and use.

I really did enjoy it!

Great idea! I will keep the extension installed because I do think this is practical!

I could see myself using this regularly

Positive results on “Trusted Advice” Shopping Add-in testing

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features

Some negative results on “Trusted Advice” Shopping Add-in testing

See videos at http://factnote.com/c/e245

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features

Some negative results on “Trusted Advice” Shopping Add-in testing

I was a little frustrated when it didn’t find the item I was looking for

I can find more thorough price comparisons elsewhere…

I usually don’t shop in Chrome, so that’s an inconvenience.

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features• SEO Battle

MBA Exchange spams us out of Google

Here’s Where We Ended Up Version 2.1: Trusted Advice

The adventure continues

Trusted Advice 2.0

Protection against SEO-spammers

Next Experiments: • Trusted Lead Gen • Trusted Advice

website powered by Shopping Add-in

Original idea

PAT THE PROFESSIONALUpwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

TRUSTED ADVICE Discover online goods recommended by friends at the lowest possible price from trusted vendors

Foil advertorial spammers polluting the Interweb with toxic pseudo-content

Affiliate program

SEO/SEM/SM

Web marketing

IE/FF/Chrome teams

What We Learned

• Potential for disruption abounds

What We Learned

• Life is short, focus on big markets

What We Learned

• Life is short, focus on big markets

• All we need is to be relentless

Thanks

www.steveblank.com

I Write a Blog www.steveblank.com

Carpe Diem

www.steveblank.com

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